The rebound in retail sales in January underlined last year’s lesson not to underestimate the resilience of UK consumers. However, the more discretionary part of sales – non-food – remains fairly sluggish. And spending off the high street (which is the lion’s share of total spending) has failed to pick up. Consumers might stand firm a little longer, especially given that house prices are yet to fall significantly. But we continue to think that spending growth will slow sharply before too long. In fact, given the recent equity price falls, the new round of utility price hikes and further signs of tightening credit conditions, we recently downgraded our consumer spending forecasts. We now expect real spending to rise by only 1.5% this year and 1% or so next year.
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